Governor Brown and the IRS Reexamine the Classification of Independent Contractors
Both houses of the California Legislature recently passed S.B. 459 and sent it on to Governor Brown for signature. S.B. 459 prohibits and punishes the "willful misclassification" of employees as independent contractors; S.B. 459 would impose stiff civil penalties for each violation and even higher penalties if a "pattern" of violations is found.
At the same time the IRS has unveiled an employer forgiveness program, called the Voluntary Classification Settlement Program. Wherein if an employer voluntarily comes forward and reports that they have been misclassifying their employees as independent contractors the IRS would require that they only pay approximately 10 percent of the back taxes. The IRS also promises no audits and no penalties on unpaid taxes.
However the IRS has no control in courts as far as labor laws are concerned so the companies that do come forward will be opening themselves up for lawsuits for overtime back pay. With the new legislation S.B. 459 and its stiff civil penalties for each violation and even higher penalties if a "pattern" of violations is found, this could be very costly to employers.
S.B. 459 creates two new unlawful practices
1. "Willful misclassification" of an individual as an independent contractor.
2. Charging a willfully misclassified worker a fee, or making any deductions from compensation for any purpose that would have violated the law governing deductions from pay — Labor Code §§221 and 224 — had the worker properly been classified as an employee.
It’s important to also note the change in the definition of "Willful misclassification". Previously the definition of "willful" in earlier versions of the legislation was "voluntary and intentional" the new bill redefined “willful” as "avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” Knowingly being the operative word. "Knowing" is interpreted by the courts as including constructive knowledge, which in turn incorporates what the employer allegedly should have known — an inexact and subjective standard applied post hoc by a finder of fact. In other words, even if the employer believed they were classifying the independent contractors according to law the employer is still expected to know otherwise.
If you are currently classified as an independent contractor you should have control over the following:
- Make your own schedule
- Use your own equipment, tools, vehicle
- Not required to wear a uniform or clothing with company logo
- Use/ purchase your own materials to complete work
- No constant supervision of tasks and performance
If any of these conditions are not met you should contact an experience California labor law attorney to review your situation. You may be entitled to overtime back pay as well as penalties for missed meal and rest breaks.
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